It was the best of recessions, it was the worst of recessions.
Many investors have now lived through two 50% downturns. When the dot-com and housing bubbles both burst, they devastated their respective sectors and bankrupted a lot of companies. It took five years from the market bottom in 2002 for equities to surpass their previous record; it took only four years from the depths of 2009 to get back to new highs.
And yet the recovery from the dot-com bubble seemed so much more complete. By 2005 the economy had made up all its lost jobs, but we won’t get back the jobs lost since 2007 before the middle of next year. What made this downturn so vicious and the recovery so tepid?
The difference is finance. The epicenter of the dot-com downturn was technology, but when the housing bubble burst it also busted the financial sector. And while technology is an important part of the economy, banking is its life-blood. To use a medical analogy, a broken leg is painful and makes it hard to move, but a heart-attack changes everything. We’re still recovering from the global coronary brought on by the housing bubble.
It’s possible to recuperate from a heart-attack, but your lifestyle needs to change. Right now, our economy is still adjusting.
Douglas R. Tengdin, CFA
Chief Investment Officer